Supply And Demand - Chapter 3 Page 20
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37Chapter 3: Supply and Demand
71
time—more people decided to open up maple syrup farms because it was a profitable
business, the supply of maple syrup would increase. And if maple syrup farms began
closing down, their number would be reduced and supply would decrease.
An increase in the number of sellers—with no other change—shifts the sup-
ply curve rightward.
Expected Price. Imagine you’re the president of Sticky’s Maple Syrup, Inc., and you
expect that the market price of maple syrup—over which you, as an individual sell-
er, have no influence—to rise next month. What would you do? You’d certainly
want to postpone selling your maple syrup until the price is higher and your profit
greater. Therefore, at any given price now, you might slow down production, or just
slow down sales by warehousing more of what you produce. If other firms have sim-
ilar expectations of a price hike, they’ll do the same. Thus, an expectation of a
future price hike will decrease sup-
ply in the present.
Does Demand Affect Supply?
In the list of variables that shift the
Suppose instead you expect the
supply curve in Figure 7 we’ve left out the amount that buyers
market price to drop next month.
would like to buy. Is this a mistake? Doesn’t demand affect
DANGEROUS
supply?
Then—at any given price—you’d
CURVES
The answer is no—at least, not directly. The supply curve
want to sell more now, by stepping
tells us how much sellers would like to sell at each different
up production and even selling out
price. Buyers’ behavior doesn’t affect this hypothetical quantity, so
of your inventories. So an expected
buyers cannot cause the supply curve to shift. As you’ll soon see, buy-
future drop in the price would
ers can affect the price of the good, which in turn affects quantity supplied. But
cause an increase in supply in the
this causes a movement along the supply curve—not a shift.
present.
In many markets, an expectation of a future price rise shifts the current sup-
ply curve leftward. Similarly, an expectation of a future price drop shifts the
current supply curve rightward.
Changes in Weather and Other Natural Events. Weather conditions are an especial-
ly important determinant of the supply of agricultural goods.
Favorable weather increases crop yields, and causes a rightward shift of the
supply curve for that crop. Unfavorable weather destroys crops and shrinks
yields, and shifts the supply curve leftward.
In addition to bad weather, natural disasters such as fires, hurricanes, and earth-
quakes can destroy or disrupt the productive capacity of all firms in a region. If
many sellers of a particular good are located in the affected area, the supply curve
for that good will shift leftward. For example, after Hurricanes Katrina and Rita
struck the U.S. Gulf Coast in August and September of 2005, 20 percent of the
nation’s oil refining capacity was taken out for several weeks, causing a sizable
leftward shift of the supply curve for gasoline.
S
—A S
UPPLY
UMMARY
Figure 7 summarizes the various factors we’ve discussed that affect the supply side
of the market, and how we illustrate them using a supply curve. But the short list
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